GRAND RAPIDS, Mich. (WOOD) — A Grand Rapids man is warning other homeowners to be careful before getting involved in a land contract. Some of his property was seized when a deal went wrong.
In 2010, retired engineering professor Thomas Hollen was trying to sell his late parents’ home on Eleanor Street NE in Grand Rapids during a down economy.
“My dad was so proud of it. It was the first house he’d owned,” Hollen said.
The house needed repairs, so there was a lack of interest in buyers until a company called Midwest Investment Services offered $40,000 on a land contract.
The sale appeared to be trouble-free for a few years until Hollen received a notice from the Kent County Treasurer’s Office. The notice threatened to seize the home because the taxes on it weren’t being paid by the buyer, who was responsible for the payment. During an email exchange, the man who runs Midwest Investment Services, Darrell DeWard, told Hollen he was trying to sell the home and would use part of the profit to pay the taxes.
With less than a month remaining to the payment deadline, Hollen received another email that said the company didn’t have the funds to make the payment. Midwest Investment Services blamed the lack of funds on an embezzlement by a bookkeeper and a tenant who had not paid rent. The email went on to ask Hollen to pay the taxes on the home and help fund the renovations being made to it. It said whatever he spent would be added to the remaining balance on the land contract.
But Hollen didn’t have the money to cover the taxes either. The house went into foreclosure and was seized.
Hollen sued Midwest Investment Services and received a $39,000 judgment.
“I haven’t seen a penny from them,” he said.
In an email to Target 8 investigators, DeWard said he couldn’t comment on the lawsuit and said Hollen shouldn’t be discussing it either, suggesting there was a confidentiality agreement in place.
Local and county property records show Midwest Investment Services is routinely late on property taxes. The Kent County Treasurer’s Office has issued 35 forfeiture notices on 16 of its properties.
A forfeiture notice is a warning that the owner has 13 months to pay off the taxes or lose the property. It appears Midwest Investment Services eventually paid up or sold the properties.
Kent County Treasurer Ken Parrish said the slow pay game “is familiar” to him.
“We do see that occasionally here in Kent County,” he said.
He noted it’s more of a problem in other parts of the state.
It may have been a bigger issue before the law changed in 1999. Prior to that, property owners could float their property taxes for four years or more before they had to pay up or lose the property. It has been changed to two years. If an owner fails to pay the local property tax, the city or township in effect sells the tax debt to the county treasurer, and the treasurer then becomes the tax collector.
Parrish said that since the peak of the recession, the number of tax foreclosures dwindled to 71 last year. He said his office issued 1,900 forfeiture notices warning people they had 13 months to pay, but the vast majority settled their balance before the deadline.
He didn’t know how many of the recent cases were like the Eleanor Street case, but said, “All the time I hear complaints from buyers and sellers about disputes over who was supposed to pay the taxes.”
He said using a land contract is “a riskier way of doing business.”
>>Online: Pros and cons of land contracts
Land contracts aren’t like the typical home sale where the seller ends up with the money and has nothing more to do with the home while the buyer gets the house and pays the mortgage. Those contracts usually spell out which party is responsible for taxes and other costs. Land contracts involve risks for both the seller and buyer.
In the Eleanor Street case, the seller lost the house because the buyer didn’t pay the taxes, but the result would have been the same even if the scenario were reversed.
After the home was seized, the Kent County Land Bank sold it. Land Bank Executive Director Dave Allen said land contracts are good for first-time buyers who have trouble getting a mortgage. However, he said people should spend time learning how land contracts work before getting involved.
Allen said he has seen predatory sellers demand a huge down payment or out-of-line interest payments, which he says shouldn’t be more than a percent or two higher than the average mortgage rate.
“(Sellers have to) imagine that you’re a bank, and if that land contract goes bad, you have to go through the same foreclosure process that a bank would do with an added layer of getting the land contract removed,” Allen said. “It’s a very complicated situation.”